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Euro to Pound Exchange Rate Advances as UK Economic Slowdown Continues

Euro to Pound Exchange Rate Jumps as Pound Selloff Continues on UK Manufacturing PMI

On Tuesday, it was confirmed that Britain’s factory growth had hit its worst levels in 17 months and as a result the Euro to Pound (EUR/GBP) exchange rate advanced more easily despite a lack of fresh support in Euro (EUR) trade.

Following last week’s jump from 0.8777 to 0.8804, EUR/GBP shed most of last week’s gains on Monday. However, Tuesday’s disappointing UK data caused Sterling (GBP) to weaken further again and EUR/GBP trended near 0.8795 at the time of writing.

Investors hoping that underwhelming UK growth in February and March was caused by bad weather rather than underlying weakness, were disappointed by April’s manufacturing PMI from Markit.

The data fell short of expectations and indicated that Britain’s economy was still seeing slower than expected performance in Q2. This weighed on hopes that Britain’s economy would improve, following a disappointing Q1.

Pound (GBP) Exchange Rates Unappealing as UK Economic Outlook Worsens

Following last week’s disappointing UK Gross Domestic Product (GDP) Q1 projections, investors had hoped that Britain’s economy would see stronger performance in Q2.

However, so far April’s data continues to indicate that Britain’s economic growth is slowing down and this has left the Pound unappealing.

Britain’s April manufacturing PMI was forecast to slip from 55.1 to 54.8, but instead fell from a revised 54.9 to a disappointing 53.9.

Analysts generally expressed concern with the results. According to Lee Hopley, chief economist from EEF:

‘The further slowdown in the rate of expansion in manufacturing activity suggests that the weaker official data seen last week wasn’t a temporary aberration.

A weaker start to the second quarter with a more subdued pace of growth in new overseas business perhaps reflects concerns about the erection of new barriers to trade, the recent pick up in Sterling and a softer growth patch at the start of the year in European markets.’

The day’s other UK data didn’t have much of an impact on Pound trade. Mortgage approvals and lending data came in close to expectations while the Bank of England’s (BoE) March consumer credit figure came in much lower than expected.

Euro (EUR) Exchange Rate Gains Limited on Subdued Eurozone Inflation

The Euro has been unable to really capitalise on Pound weakness, which is why EUR/GBP continues to trend below this week’s opening levels.

This is because Euro appeal has been weakened by recent Eurozone ecostats, most of which have failed to impress investors.

Monday saw the publication of Italy and Germany’s April Consumer Price Index (CPI) projections, which were mixed.

Italian inflation fell short of forecasts in most prints. While Germany’s monthly inflation rate came in at 0% rather than the expected -0.1%, both harmonised inflation prints fell short of expectations.

German retail sales were disappointing too, printing a surprising -0.6% contraction month-on-month.

With expectations that the Eurozone’s economic growth is moderating following a strong 2017, investors have little reason to buy the Euro either which is limiting its potential gains against Sterling.

Euro to Pound (EUR/GBP) Forecast: Major Eurozone Ecostats Due in Coming Days

The Euro to Pound (EUR/GBP) exchange rate could continue to rally in the coming days, but that largely depends on how strong the Eurozone’s upcoming dataset results are.

Following disappointing inflation figures from major Eurozone nations, investors highly doubt that Thursday’s inflation projection for the overall Eurozone will be particularly impressive.

However, if other key Eurozone data such as Wednesday’s growth or unemployment reports impress investors it could make the Euro more appealing and could support further EUR/GBP gains.

Eurozone growth is forecast to have slowed from 0.6% to 0.4% quarter-on-quarter, but if it beats expectations investors may become more confident that the Eurozone’s growth has remained impressive.

The Eurozone’s final April PMI reports from Markit and March retail sales results could also influence Euro trade on Friday.

With UK manufacturing disappointing, the only hope Sterling has of stronger performance this week is if Brexit developments or Thursday’s UK services PMI impress.

The Euro to Pound (EUR/GBP) exchange rate could still see losses this week if Eurozone data continues to disappoint and UK data begins to improve.